Failure to Define “Fee” in a Contract Results in a $5.5M Award Against Yahoo!

In 2014, Yahoo! wanted to sponsor a perfect bracket contest in connection with the NCAA Men’s Basketball Tournament, with a $1 billion prize for any contestant who correctly predicted the winner of all 63 games. It entered into a contract with SCA Promotions, Inc., which provides risk management for marketing and prize promotions.

The contract contained two invoices at the end, according to which the fee for the entire contract was $11 million. It also contained a cancellation fee that Yahoo! would have to pay SCA if it cancelled the contract before a certain date.

After signing the contract, Yahoo! decided to co-sponsor another $1 billion perfect bracket contest with Warren Buffett and Berkshire Hathaway and cancelled the contract with SCA.

SCA sued claiming that Yahoo! owed it $5.5 million – a half of $11 million – as the cancellation fee. Yahoo! argued that the cancellation “fee” meant half of the amount that Yahoo! had prepaid on the contract in the beginning, i.e. $550,000. The parties’ arguments came down to the interpretation of the following provision in the contract:

Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph. … Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor. . .

The Fifth Circuit Court of Appeals ruled in favor of SCA finding that the cancellation “fee” referred to the entire fee for the contract, i.e. $11 million. In reaching that conclusion, it looked at the entire contract, analyzed other provisions that mentioned “fee,” and reached the conclusion that Yahoo’s! argument rendered other provisions in the contract meaningless; therefore, it could not be the right interpretation.

BOTTOM LINE: When contractual language is not clear, a lot of times, courts will look at the intent of the parties in entering into the contract and analyze the entire contract to make sure that its interpretation of the disputed clause does not contradict or render other parts of the contract meaningless. Thus, the issue of contractual interpretation is rarely as straightforward as the parties think.

If you end up with a contract that is less than clear and you face potential litigation, you should consult with an attorney experienced in contract disputes to determine how likely is your interpretation to hold up in court.

Leiza represents companies in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.comor (214) 722-7108 or fill out the form below.